October 28, 2015; Fortune and AlterNet.org
The top 100 chief executives in the United States are sitting on pension pots worth $4.9 billion, a sum equal to the total retirement savings of 116 million of the poorest Americans, according to “A Tale of Two Retirements,” a study released by the Institute of Policy Studies (IPS) Washington think tank this week.
Nearly three-quarters of Fortune 500 firms have also set up special tax-deferred compensation accounts for their executives, similar to the 401(k) plans that some Americans receive through their employers. But ordinary American workers face strict limits on how much pre-tax income they can invest each year in these plans. Top executives do not. Some are eligible for Supplemental Executive Retirement Plans (SERPs). These defined benefit plans have been eliminated in many companies under shareholder pressure but those already entitled were grandfathered. Others also benefit from special deferred compensation plans set up by their companies, without limits on how much of their pre-tax pay they can set aside each year. Ordinary workers face a limit, currently of $24,000 per year, as they approach retirement.
The privileged CEOs are free to shelter unlimited amounts of compensation in special pots, where their money can grow, tax-free, until they retire. On average, the top 100 CEO nest eggs are enough to generate a $277,686 monthly retirement check for the rest of their lives. Yet according to a study by the New School for Social Research, 55 percent of those aged 50–64 will be forced to rely almost solely on Social Security (which averages $1,233 a month). And analysis by the Government Accountability Office shows that 29 percent of workers approaching retirement (aged 50-65) have neither a pension nor retirement savings in a 401(k) or Individual Retirement Account (IRA).
Especially galling, reports Rupert Neate writing for content provider AlterNet, is the case of David Novak. Novak is Executive Chairman of Yum! Brands, which owns the KFC, Taco Bell and Pizza Hut brands. According to the study, Novak has the largest nest egg of them all—a cool $234 mil. Yet, just 8,828 of Yum! employees in the U.S. have any money in a 401k, according to filings with the Department of Labor. Their average balances are $70,167. If converted to an annuity, this average amount would generate about $395 per month, compared to the $1.3 million monthly check Novak can expect to receive.
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According to Neate, Yum! has said it offers every U.S. company employee a 401k retirement savings plan that includes a six percent dollar-for-dollar match with no vesting period and low fees. It is not clear, however, whether anything similar extends to the 537,000 staff that the Institute of Policy Studies says work part-time in Yum’s 41,000 KFC, Taco Bell and Pizza Hut restaurants around the rest of the world.
Neate also reports that Yum! has been a key player lobbying against President’s Obama’s plan to increase the minimum wage. Obama’s proposal has fallen afoul of Congress and is unlikely to become law before the end of his presidential term.
The IPS study says:
The lavish retirement packages for executives and growing retirement insecurity for the rest of us are inextricably linked. The rules now in place create powerful incentives to slash worker retirement benefits as a way of boosting corporate profits and stock prices. And since more than half of executive compensation is tied to the company’s stock price, every dollar not spent on employee retirement security is money in the CEO’s pocket.
The study ends with nine recommendations the Institute says would rein in the accumulation of retirement assets at the top, while expanding the funds available to ensure a dignified retirement for all. The full study can be downloaded.—John Godfrey